In­stalled a new 40% div­i­dend pol­icy. in five years and the com­pany has even also been re­duced to its low­est level

Finweek English Edition - - Indepth - By David McKay ed­i­to­rial@fin­week.co.za

as the de­mand from in­vestors would in­creas­ingly turn to growth – the debt-heavy days of 2013 to 2016 now be­com­ing a mem­ory.

Herein lies an in­ter­est­ing dy­namic be­tween the Aus­tralians, with Cu­ti­fani’s nat­u­ral ef­fu­sive­ness com­ing up against a clearly con­ser­va­tive CFO. “I think I’m go­ing to stick to my guns,” said Pearce when ques­tioned on why the purse strings could not be loos­ened at An­glo in terms of project growth.

“We have to strike a bal­ance,” he stated. “The mar­ket is re­ward­ing strength in the bal­ance sheet. Projects will be con­sid­ered, but we won’t put the bal­ance sheet at risk. We still have work to do to re­gain cred­i­bil­ity, even in our own or­gan­i­sa­tion,” he said.

“We shouldn’t get too ex­cited,” Pearce added in re­sponse to prod­ding over whether An­glo would press the but­ton on the ex­pan­sion of its Quellavecco cop­per mine in Peru.

Ex­pan­sion op­por­tu­ni­ties

In an in­ter­view with fin­week, Cu­ti­fani sug­gested that with care­ful al­lo­ca­tion of cap­i­tal, An­glo could pro­duce 50% more of the min­er­als to­day in the next five years. One po­ten­tial project is to have De Beers’ Orapa mine in Botswana pro­duc­ing more ma­te­rial through se­lec­tive brown­field ex­pan­sion and de­bot­tle­neck­ing.

Said Cu­ti­fani: “It’s too early to say, but a 10% to 20% im­prove­ment in pro­duc­tion might be pos­si­ble. We have to work through the num­bers first over the next 12 months; see what the re­source and re­serve po­ten­tial is at the mine. That’s where the big op­por­tu­ni­ties are, where we haven’t tested our min­eral en­dow­ments fully.”

De Beers’ Vene­tia and Jwa­neng mines would also be tested for in­cre­men­tal pro­duc­tion in­creases while Cu­ti­fani said the firm’s 44%-owned Col­lahuasi cop­per mine in Chile was an­other fo­cus area in re­spect of low­er­ing costs. Even Mi­nas Rio, the Brazil­ian iron ore project de­scribed as An­glo’s sin­gle worst in­vest­ment, is po­ten­tially up for an ex­pan­sion to 26.5m tonnes (Mt) of iron ore a year with the fur­ther pos­si­bil­ity of 30Mt “...at the right time, and with the right in­cre­ments”.

All of this will have to get past Pearce, how­ever, who has ex­pe­ri­ence of rein­ing in ebul­lient CEOs. He was pre­vi­ously CFO at Aus­tralian-based iron ore miner Fortes­cue Met­als Group, whose leader, An­drew “Twiggy” For­rest, is known for his barn-storm­ing state­ments of in­tent and am­bi­tion.

South African risk

“The mar­ket is re­ward­ing strength in the bal­ance sheet. Projects will be con­sid­ered, but we won’t put the bal­ance sheet at risk.”

What’s in­ter­est­ing about the fresh en­thu­si­asm for An­glo Amer­i­can is how rel­a­tively lit­tle bear­ing the SA ques­tion – de­scribed by Cu­ti­fani as “the ques­tion” – has on the share. Pro­vided the com­pany is pay­ing div­i­dends, share­hold­ers are pre­pared to sup­port it. In fact, it was the per­for­mance of one JSE-listed com­pany in which An­glo has shares – Kumba Iron Ore – that helped An­glo to lower net debt as it did.

Still, the im­passe in the in­dus­try-gov­ern­ment re­la­tion­ship is a source of frus­tra­tion for Cu­ti­fani. “The South African ques­tion is the ques­tion,” he told an­a­lysts. “We are do­ing all the things we said we would do on cor­po­rate side in terms of over­heads. We have man­aged and sold as­sets that are ei­ther small-scale or not long-term. We are do­ing that type of work.

“But we don’t ex­pect to land a longer term po­si­tion re­gard­ing SA this year,” he added. “There will be so much noise around the lead­er­ship de­bate [of the ANC] and it will be dif­fi­cult to get any­one to fo­cus. But we like the as­sets that we have.”

In ad­di­tion to Kumba, An­glo also owns ex­port coal mines and is the dom­i­nant share­holder in An­glo Amer­i­can Plat­inum. Said Cu­ti­fani: “We will con­tinue to im­prove them and at some point there will be di­a­logue on the way for­ward. If you look at the US, it is still ar­gu­ing about the elec­tion re­sult so there’s noth­ing new about lead­er­ship de­bates of this type.

“But un­for­tu­nately, SA is nois­ier than most.” ■

Stephen Pearce Chief fi­nan­cial of­fi­cer of An­glo Amer­i­can

Tony O’Neill Tech­ni­cal di­rec­tor of An­glo Amer­i­can

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